Why Gold Became the Measure of Value: An In-Depth Examination

Among the various metals and substances that have value, why did gold become the go-to measure of value for centuries? To truly understand this, it is essential to delve into the historical, economic, and intrinsic properties that make gold unique.

Understanding the Rarity and Durable Nature of Gold

Even elements like iron, copper, and silver, which are commonly used and perceived as valuable, have intrinsic worth. However, the case of gold stands out due to its rarity and diverse applications. Metals like iron and copper can rust, silver tarnish, and even soil and sand can vary in value depending on their specific characteristics and availability. Yet, despite the existence of various metals with value, gold has particularly stood the test of time as a standard of worth.

The rarity of gold is a significant factor. Imagine if the price of gold suddenly decreased. For example, if gold worth 1000 for 10 grams became more accessible, people would quickly gravitate towards using it more extensively. Jewelry, dining utensils, and even home decorations would be made from gold due to its non-reactive and durable nature. Gold's shine retains its brilliance even after 200 years, making it a timeless symbol of value and prestige.

Gold as a Global Currency and Trustless Medium of Exchange

One of the reasons why gold became the measure of value is its acceptance as a currency worldwide. Unlike paper currency or digital assets which lack intrinsic value, gold itself is a tangible asset that can be universally recognized. This universality is demonstrated by historical instances, such as during World War II when soldiers carried gold coins to ensure they could bargain and trade with locals even when they were in foreign territories.

The chemical stability of gold is another significant factor. Unlike iron or steel, which can rust over time, gold does not corrode or tarnish. This makes it an ideal material for jewelry, coins, and other items that are meant to last for generations. The durability of gold ensures that it maintains its value over time, retaining its purchasing power and making it a reliable store of value.

Historical Significance of Gold

The historical significance of gold cannot be overstated. Human civilization has valued gold for thousands of years, from the first coins minted in Lydia around 600 BCE to the present day. The stability of gold's value over time is remarkable. For example, in 562 BCE, during the reign of the Babylonian king Nebuchadnezzar, an ounce of gold bought about 350 loaves of bread. Today, an ounce of gold still has approximately the same purchasing power, which is testament to its enduring value.

Furthermore, the pragmatic applications of gold have ensured its survival as a medium of exchange. Gold has been used in coins, decorations, and as a store of value. The universal recognition of gold's value, even among people who may not share a common language or culture, speaks to its enduring appeal. This trustless nature of gold, as described by Ray Dalio, makes it an invaluable asset in times of economic uncertainty or political instability. When other forms of currency may be subject to devaluation, gold remains a steadfast and reliable store of value.

Gold has a unique combination of being rare, durable, and universally recognized. These qualities have made it the ultimate measure of value over the centuries, ensuring its place as a symbol of wealth and stability in a constantly evolving global economy.